Since education makes a person more likely to leave your region, how do you justify your investment in human capital?

Saturday, May 03, 2008

Silicon Valley of the Rust Belt

Some of you may remember Chris Varley's (Tech Futures) series of blog posts comparing Cleveland to Chattanooga. As the Rust Belt Bloggers Network grapples with the functional size of the mega-region, should we also consider Chattanooga? Birmingham? Chattanooga self-identifies with the Rust Belt plight and now the city is touting its own rebirth:

Though the “brain drain” of the ’80s and ’90s is mostly behind us, Chattanooga has got to find more ways to keep talented young people here in the valley after they leave school. The relatively low cost of living, centralized location and (mostly) clean environment are a good start. The way to seal the deal may be to trumpet the fact that Chattanooga is more than just a tourist destination, and that you can have a good (and interesting) career and life here.

A thriving tourist economy would make Chattanooga somewhat unique among shrinking city club members, but the stated assets for the promised economic transformation are pedestrian. Forbes magazine is singing the city's praises as the next Palo Alto or Austin, lumping Chattanooga in with emerging boomtowns such as Boise.

Before anyone starts eying Pittsburgh as the next Chattanooga, keep in mind Mike Madison's post on the value of place. Talent is increasingly geographically mobile, making regional comparative advantage all the more vital. What can Pittsburgh offer that no other place can?

I've given this question a great deal of thought over the last three years. I intended to try to provide an answer over at Pittsburgh Quarterly, but the Chattanooga story made the blog here a better fit. Pittsburgh could be a global center for the diaspora economy, embracing the geographic mobility of human capital instead of playing it like a zero-sum game. The well-formed identity of the Burgh Diaspora is one reason why I think Pittsburgh can pull it off. The other reason is the connection between two companies that might seem unrelated: Etcetera Edutainment and Guru.

Etcetera Edutainment is a spillover (ImpactGames is another notable example) from Carnegie Mellon University's Entertainment Technology Center. Such industry offers a number of practical applications such as virtual collaboration and distance learning. The problem that this economic cluster can address is the barrier that distance poses to tacit knowledge exchange. How this impediment creates a drag on economic growth is most clear in the case of venture capital and its highly localized transaction range.

I slot Guru in the same cluster, creating a marketplace for work independent of location. Freelancers are in a better position to take advantage of the lower business costs that many shrinking cities can offer and decoupling creativity from high-rent cities such as New York will free up more financial capital for the innovation economy. However, other regions may jump on the bandwagon once a winning business model emerges.

Putting aside the Burgh Diaspora advantage, leaping after the latest economic development craze is easier said than done. Turning the Rust Belt into the Green Belt sells well, but not every shrinking city can be exceptional. One restriction is the available entrepreneurial talent:

Although the prospect of minting money while helping to save the planet has attracted a stream of executives from other industries to clean-tech start-ups, few of them have much experience of their new field. In a recent global survey of 75 senior executives involved in clean-tech firms conducted by NEF and Heidrick & Struggles, a headhunter, over 90% cited top-level recruitment as a serious concern.

On this count, Pittsburgh is quietly building an insurmountable edge in human capital for the diaspora economy. The rub is that local venture capital is rather shortsighted and conservative. Furthermore, policy favors biotech and other more politically expedient innovation. That's not to say I don't welcome a diverse portfolio of economic development. My concern is that green technologies are sold as a panacea because the idea is popular.

If Chattanooga wants to be the Silicon Valley of the Rust Belt, I wish them luck. In five years I'll be blogging about the cities that might emerge as the next Pittsburgh.